National Australia Bank Ltd (ASX: NAB) released its half-year results on Monday, and I think there was a lot for investors to work through.
At face value, the numbers looked messy because of a large software-related accounting charge. But once that is stripped out, I think the result showed a bank that is still performing reasonably well, while also preparing for a tougher and more uncertain environment.
Here are my three key takeaways.
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The underlying business is still moving forward
The first thing that stood out to me was that NAB's underlying performance was better than the headline profit number suggested.
Cash earnings came in at $2.64 billion, but excluding large notable items, cash earnings were $3.59 billion. That was up 2.3% on the second half of FY25 and broadly flat compared with the prior corresponding period. Underlying profit, excluding large notable items, increased 6.4%.
I think that is a decent outcome in the current environment.
The large notable item related to changes in NAB's software capitalisation policy, which lowered cash earnings by $949 million after tax.
That is important context. It makes the statutory result look weaker, but I do not think it changes the basic story of the bank's operating momentum.
NAB continues to lean into the areas where it wants to win: business banking, deposits, and proprietary home lending. The update showed growth in Australian business lending, stronger transaction account balances, and a lift in proprietary home loan drawdowns.
For me, that suggests management is executing on the right parts of the business.
Business banking remains the main strength
The second takeaway is that NAB's business banking franchise still looks like the standout part of the group.
Business & Private Banking cash earnings rose 9.9% compared with the second half of FY25, helped by higher underlying profit and lower credit impairment charges.
I think this division is where NAB has its clearest edge.
The bank has long had a strong position with business customers, particularly small and medium enterprises. In the latest half, it continued to grow business lending balances and gain market share in SME and total business lending.
That gives NAB a slightly different profile from some of the other major banks, which can be more heavily judged on mortgage competition.
I also like that NAB is investing in making business banking simpler and faster. More than 80% of first-half lending applications were submitted digitally, according to the summary, which should help improve efficiency and customer experience over time.
The bank is preparing for more uncertainty
The third takeaway is that NAB is clearly becoming more cautious about the outlook.
Credit impairment charges rose to $706 million from $485 million in the previous half. The bank also increased forward-looking provisions by $300 million, partly due to potential stress linked to the Middle East conflict and the risk of fuel supply and cost pressures across certain sectors.
I do not see that as a reason to panic.
In fact, I would rather see a bank build resilience early than wait until problems show up more clearly.
NAB's capital position also looks solid. Its CET1 ratio was 11.65% at the end of March, with a pro forma ratio of 12.05% after the expected impact of the discounted and partially underwritten dividend reinvestment plan.
The interim dividend was held at 85 cents per share, fully franked.
Are NAB shares a buy?
I think NAB is a quality bank with a strong business banking franchise, a sound dividend, and a clear strategy.
But after a strong period for bank shares, I would class NAB as a hold rather than a buy today.
The result was solid enough, but the outlook is less certain, credit costs are rising, and I do not think the stock looks obviously cheap.
Foolish takeaway
Overall, I think NAB's half-year result was respectable once the software charge is put in context.
The underlying bank is still moving forward, business banking remains a real strength, and the balance sheet looks prepared for a more volatile period.
For existing shareholders, I think there is enough here to stay patient. For new investors, I would be more selective at current prices.
